Joe Terranova discusses the quantitative method for the JOET ETF that spots early winners like Palantir.

Joe Terranova Sticks to Quantitative Strategy with JOET ETF

Joe Terranova is committed to his quantitative investment strategy. The Virtus Terranova US Quality Momentum ETF (JOET) aims to pinpoint stocks like Palantir early on, ideally before the market starts to catch on, which has been a trend over the last five years.

Founded by Terranova, the chief market strategist at Virtus Investment Partners, this ETF has seen a notable increase of 10.9% this year, surpassing last year’s 6.8% performance. This is significant, especially considering the fluctuating market landscape.

In managing the ETF’s holdings, Terranova adheres to strict, rules-based principles. He and his team start by screening the 500 largest publicly traded U.S. companies for those showing the highest positive momentum, using total returns from the past year as a gauge. They then narrow this list down to the top 250 stocks.

Next, these securities are evaluated on three quality factors: return on equity, debt-to-equity ratio, and annualized sales growth over the previous three years. The top 125 stocks with the best composite scores ultimately comprise the ETF’s holdings, which are equally weighted.

While the fund isn’t actively managed in the conventional sense, it does undergo quarterly rebalancing. Terranova suggests that his disciplined, rules-based approach allows him to sidestep emotional decisions that could otherwise skew investment choices.

Reflecting on his past picks, he mentioned that Palantir qualified in early 2017, though he was not involved with the S&P that year because of his focus elsewhere. “Had I had more flexibility, I might have sold at different points,” he noted, recalling the potential to have sold that stock multiple times.

When he acquired Palantir, it was trading around $16.76, and it has since skyrocketed to around $173, marking an impressive rise of 129% this year.

Terranova believes his investment style has been effective in capturing market trends and getting in early on emerging themes, such as the current rally in healthcare. Conversely, it has also prompted him to sell stocks he might have otherwise held onto longer.

He admitted to having a certain attachment to long-standing holdings, saying, “I have more affection for stocks that have been around for a while.” Tesla is a prime example, as he anticipated a slowdown in its growth and appropriately liquidated his position on Halloween, which he views as a wise decision.

Looking ahead, Terranova intends to expand his ETF offerings to cover more than just large-cap U.S. stocks, considering small-cap stocks and even European equities. He is optimistic his strategy will not only remain effective but also help establish foundational holdings and act as stabilizers within investor portfolios.

“Momentum shows technical confidence, while quality indicates fundamental confidence. Investing around these concepts is key,” he stated, reflecting on his long-term vision for success.